Report No: 78283 and acs2876

Policy recommendations

171. 
     A key area for policy reform will be an overhaul of the import and export restrictions that currently exist, and to review the overall trade policy environment. Attempts of removing the import bans in Nigeria, however, have to date not been successful largely due to strong opposition from the Manufacturers Association of Nigeria (MAN) and large sections of government supporting mercantilist policies. Recent discussions that seem to equate food security with food self-sufficiency exemplify this thinking. There is a general need to reforming the trade policy environment in Nigeria to allow companies integrate into global supply chains, get access to lower quality intermediate inputs, and ensuring low prices for key food staples to the poorer members of society. Significant work on this has recently been undertaken by the World Bank which could give additional guidance.⁷⁰
     
172. 
     As traders currently pay significantly less in customs duties as compared to full statutory rates and VAT, which would often require payments of more than 50 per cent of the product value, efforts should aim to formalize, or develop, trade schemes reflecting the realities of cross border trade, similar to those currently applied. Such schemes could establish a ceiling for duty-free trade and apply to small-scale traders using trucks to consolidate their shipments, formalizing existing procedures and better monitor them to ensure compliance and avoid subsequent additional payments to other customs brigades. They could for example apply to registered (transport) companies, which would encourage increased compliance and consolidations of loads. The formalization of such schemes would potentially demand discussions at the CEMAC and ECOWAS level to ensure these schemes are compatible with both countries’ international commitments at the regional level. Formalizing the currently applied system in Cameroon—and removing informal payments in parallel—is expected to increase formal payments to customs, reduce informal rents to individuals, while reducing overall costs to traders. Reforms are likely to face significant opposition from those currently capturing these rents. As long as traders feel that a formalization of procedures will lead to higher payments for them, they are also likely to oppose such reforms.
     
173. 
     Increasing transparency of existing procedures and regulations for product registration and services, such as cross-border trucking, will be essential to increase predictability of cross-border trade operations. An important element would be to take stock of all Non-Tariff Measures (NTM) in both countries in collaboration with standards agencies and private sector organizations, and possibly in collaboration with the African Development Bank, ITC, UNCTAD, and the World Bank under the Transparency in Trade initiative. In this context, it will be important to make more transparent and streamline the registration requirements and procedures for manufactured products that need to be registered before being traded. As other barriers to trade are gradually removed, such non-tariff barriers are likely to become increasingly important. The WB published NTM toolkit could provide guidance on such processes and help make them more inclusive.
     
174. 
     Publishing a list of all procedures and payment rates, as well as the rights and obligations of public officials and of traders, such as outlined in a Traders’ Charter that is currently being discussed in southern Africa,⁷¹ would increase the predictability of the trading environment and increase transparency. Eliminating the visa requirement, or making it cost-free, would add to facilitating trade, bringing down costs and reducing the incentives for traders to avoid official border crossings. Improvements in transparency should be complemented with training on these rights and obligations to encourage behavioral change. Impartial enforcement mechanisms will be needed as well, which could be phased in following an initial period during which infractions are only notified with clear warnings, but do not immediately result in penalties.
     
175. 
     It will be important to complement investments in hard infrastructure, such as the rehabilitation of the Enugu-Bamenda corridor, with important and difficult regulatory reforms to make sure that reductions in transport costs are passed on to consumers through increased competition and to avoid potential rent capture by transport providers or other agents. High priority should be placed on reducing unofficial payments to customs, police, and other officials at control points along the cross-border corridors. In the current situation, which would be similar to a situation where existing border arrangements were formalized, about one third of total cross-border transfer costs accrue to physical transport costs and one third are for informal payment of various kinds, with the remainder being divided between formal customs payments and the net profit margin. While it seems logical that better roads will reduce the opportunities for stopping vehicles and extracting rents as traffic becomes more fluid and control points become more accessible and controllable by central state authorities, experience from West and East Africa suggests that active policies will be needed to remove these roadblocks, and keep them from returning.
     
176. 
     Both countries have committed to reduce the number of control points along the Onitsha-Bamenda corridor from about 30 to two as part of the rehabilitation project, but a comprehensive plan to address this issue and implement the commitment is still lacking. Reviewing in detail the political economy of these road blocks, including who are beneficiaries at various levels of government, will be essential to develop a comprehensive and realistic reform plan than could subsequently be implemented. It is likely that this initiative is going to face significant push-back from current beneficiaries who often might depend on the income currently generated and perceive it as an established right. These reviews could be undertaken independently for both countries and each corridor, including assessing the political economy at border crossings in greater detail.
     
177. 
     Further analysis of the barriers to cross-border trucking should be undertaken to better understand the factors that create additional costs and prevent fully integrated transport service providers from operating across the border. This analysis should identify all regulations and their application, and more accurately quantify the impacts and costs resulting from current policies such as the unloading and reloading of goods at the border and the absence of integrated transport service providers. As overall travel time will decline with road improvements, delays generated by these policies will become relatively more important and costly. It should also try to estimate the benefits and costs of possible reforms, and try to identify potential beneficiaries and those negatively affected. Possible outcomes will likely include legal changes in both countries and could include making transport policies compatible to allow trucks cross the border and continue to their final destination without having to offload goods and transfer them to another truck at the border.
     
178. 
     The establishment of a joint border post along the Enugu-Bamenda corridor is foreseen, but the facility should only be established after procedures on both sides have been significantly simplified, and increased support to the process is needed from both governments. The post will be established under the joint leadership of the ECOWAS and CEMAC Commissions, but no meaningful progress has been made to date.⁷² Key issues such as the location of the joint border post have not been agreed, and a number of legal changes will have to be undertaken to allow full functionality of the joint border posts, for example because the Nigerian post currently does not have the legal status to assess duty and other taxes on imports. Recognition of documentation issued by the other authorities and exchange of information will be essential. Without comprehensively addressing the procedural aspects which currently delay customs clearance, the physical construction of a joint building will not contribute to reducing crossing times, and significant efforts should be put into first simplifying and streamlining procedures of all agencies present in each country before moving towards joint operations such as joint inspection and increased information sharing.⁷³ Building of a joint facility or investment in processing equipment and computerization should come last in this process.⁷⁴
     
179. 
     Implementation of complementary reforms could be started on a pilot basis or comprehensively where possible, but all such governance reforms at borders could serve as a first step to broader governance reforms in the two countries. For example, undertaking measures to increase transparency, or reduce corruption could be undertaken at pilot locations, while others reforms, such as regulatory reforms or the formalization of the existing trade regime could be undertaken more comprehensively. Defining the necessary control functions and responsibilities of agencies for these functions would be a first step. Consolidating these control functions in one specific location (the border) with clearly defined and well monitored mobile spot-checks based on risk assessment (for example for customs) would likely reduce legitimate resistance to such measures and would help optimize processes and identify key threats that might result from a restructuring.
     
180. 
     A key component for this policy reform would be to establish a transparent monitoring and evaluation system for the intervention, as well as to develop an impartial complaint mechanism for traders. Such a system would allow measurement of the impact in terms of prices and the flow of goods, and a complaint mechanism that traders could use to raise issues of non-compliance, informal payments, and harassment will help ensure that informal procedures, additional road blocks and control points do not reappear once the focus of policy makers turns elsewhere. Once the pilot reforms have been evaluated and their impact on streamlining and improving the current system understood, reforms should be extended to other regions, or to other agencies in the context of broader governance reforms. Reforms in the public sector and the improvement and potential simplification of procedures could be coupled with more stringent control of illegal trade that completely bypasses official border posts.
     
181. 
     To support the export of paddy rice and trade in a number of agricultural commodities in the North, it will be important to rehabilitate and upgrade the road from Mora to Limani to “all-weather” status. This major crossing point currently carries the highest volume of traded but suffers high costs and delays because of the very poor quality of the road. Trucks break down on a regular basis, often blocking the road for other road users who have to divert to secondary roads that are also of extremely poor quality. The feasibility study for upgrading this road should take potential traffic expansion in the North into account.